Novice Investing - 10 Reasons for Selling

Date: Monday 01st 2008f December 2008 04:15:37 PM

10 Reasons for Selling - 09/26/2005

By: Hari Wibowo

Inaccurate Fair Value Calculation. Let's face it. People make mistakes. As investors, we sometimes made errors in our fair value calculation. There are factors that we might not take into accounts when researching a particular company. For example, Merck & Co Inc. will have a higher fair value if we dismiss the potential Vioxx liability that some say to be as high as $ 50 Billion. But doing further research, we know that Vioxx liability does exist.

New Competitors with Better Products. When new competitors sprung up, the company that you hold might have to spend more money in order to fend off competition. Recent example include the emergence of pay-per click advertising by Google. If you are in the advertising business such as newspapers or cable network, this new product by Google might hurt your profit margins and eventually the fair value of the stock.

Exodus of Talented Employees. Talent is an asset. Yet, it does not appear on the company's balance sheet. Companies that rely heavily on intellectual products need to keep their employees happy. They are prized assets. When employees defect, it will affect the company's future earnings. Lower future earnings means lower fair value for the common stock. A recent example include several Microsoft key employees defecting to Google.

Not having a valid reason to Buy. When you don't know why you bought a particular stock, you won't know how much your potential return is or when you should sell it. This is the easiest way of losing money. When you have no valid reason to buy, you should sell immediately.

Stock Reaches Fair Value. This is the easiest part of the problem. Yes. We should sell when a stock reaches its fair value. It is the main reason why we chose to buy it on the first place.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding any securities.

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